This entry was co-authored by Hodgson Russ summer associate Alyssa Helfer. Alyssa is a student at University of Pennsylvania Law School.

Some U.S. solar equipment manufacturers have lauded the Department of Commerce’s recent decision to impose high tariffs on solar panels imported from China as the end of China’s unfair market advantage; however, from the standpoint of domestic installation companies, the future of affordable solar power doesn’t look so bright.

Currently, solar panels in China are produced with the financial assistance of a government subsidy. In 2011, SolarWorld Industries America Inc., the largest manufacturer of solar panels in the United States and leader of the Coalition for American Solar Manufacturing (CASM), filed a petition with the Department of Commerce seeking to impose import duties on solar products manufactured in China. Due to the subsidy, these panels were sold in the United States at lower prices than their domestic competitors. The Department of Commerce ultimately responded by issuing a final decision in 2012 that placed import duties on panels containing Chinese-made solar cells. Chinese exporters have since been circumventing this 2012 order by using cells manufactured in Taiwan in their panels, which allows the panels to be exported to the United States duty free. This business model allowed Chinese manufacturers to sell their products in the United States at a fraction of the price charged by their domestic counterparts, effectively pricing U.S. manufacturers out of the market.

SolarWorld once again filed a petition with the Department of Commerce seeking to eliminate this export practice by Chinese exporters. As indicated in SolarWorld’s petition, the founder of Wuxi Suntech Power Co., Ltd., the world leader in production of silicon solar modules, has stated that the company’s goal is “to build market share…[by] selling solar panels on the American market for less than the cost of the materials, assembly, and shipping.” In response to SolarWorld’s petition, the Department of Commerce has announced a preliminary decision to impose import duties on solar cells, panels, and related products manufactured and exported by Chinese companies.

This ruling closes the loophole created by the Department of Commerce’s final decision in 2012. Six Chinese companies, including Suntech, will face an import duty of 35.21 percent. Changzhou Trina Solar Energy Co., Ltd, another large Chinese producer, has been assigned a tariff of 18.56 percent, and all other Chinese producers’ duty rates have been preliminarily set at 26.89 percent. The Department of Commerce explained its decision to impose these tariffs on Chinese exporters by noting that “[it will] provide U.S. businesses and workers with a transparent and internationally approved mechanism to seek relief from the market distorting effects caused by injurious subsidization of imports into the United States, establishing an opportunity to compete on a level playing field.”

While some advocates of solar power classify the Department of Commerce’s decision as a victory for the availability of green energy, others insist that it spells doom for the affordability of solar power in the United States. The Coalition for Affordable Solar Energy (CASE) has voiced its objections to the preliminary ruling, citing that the tariff is likely to result in the inevitable increase in the cost of solar power in the United States. Though the industry experienced a period of “record-breaking growth” resulting in the second largest quarter for solar panel installments to date to kick off 2014, said CASE, the import duties imposed by the Department of Commerce could stifle this growth by cutting off the current avenue to low-cost solar equipment. As a result, CASE has noted that U.S. solar businesses will be directly affected by the increase in module costs, which will inevitably result in freezing future long-term investment in the market because of pricing uncertainty. Therefore, CASE is openly encouraging the governments of the United States and China to reach a mutually beneficial negotiated settlement that will not otherwise harm either country’s markets.

Although the volume of Chinese-made solar equipment imported annually by the United States has been decreasing since 2011, these imports comprised approximately half of all equipment installed in the United States in 2013. Therefore, this decision could represent a slippery slope, whereby the good intentions of the Department of Commerce to protect the U.S. market will actually result in an overall negative impact to it long term. There is certainly a strong argument to be made that the flooding of the U.S. market with cheaper and inexpensive solar panels has negatively affected its development, but the “invisible hand” dictates that this be addressed through open competition, and if necessary, federal and state grants to offset the Chinese policy. Additionally, ensuring higher quality panels are developed and marketed in the United States will further assist in strengthening the market.

The Department of Commerce is slated to announce its final decision on August 18, 2014, with the International Trade Commission to issue its final determination 45 days later. Both agencies must approve these preliminary import duties for the order to be finalized.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

All the intelligence you need, in one easy email:

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.